Economic good: a good in which opportyunity costs are involved in consumption and are relatively scarce

ex.: fresh food, clothing, cars

Free good: a good in which no opportunity cost is involved in consuption and is not relatively scarce

ex.: air, salt water

Need: good necessary for survival; Want: good necessary for enjoyment

Goods: physical objects that are capable of being touched

vegetables, motorcars

Services: intangible things that cannot be touched

repairs

Define opportunity cost and understand its link to relative scarcity and choice

Opportunity cost: the cost of using a resource measured in terms of the sacrifice foregone in the next best alternative. When the best alternative is chosen from a range of alternatives the second best choice is the opportunity cost.

Explain the basic economic problem

"What to produce?"

the choice of the economy touse the scarce resources in what they want to produce

"guns vs. butter"

"How to produce?"

many different ways of production and combinations of recources that can be used in production

Entrepreneurship: undertake the risk of organizing and combining factors for production.

· Explain, illustrate, and analyze production possibility curves

o Point B on the PPF shows the maximum that can be produced with existing resources and technology, it is a point of productive efficiency.

o The negative slope of the PPF reflects basic scarcity

o The law of diminishing returns implies a convex PPF: as resources are transferred from one use to another, the increment in output becomes smaller, the opportunity cost larger.

· Resources are being released in the wrong combination

· The resources being released are less and less suited to the new use

o Point A inside the frontier is productively inefficient: more of one good could be produced without sacrificing any of the other:

· Under market systems it is called unemployment

· Under central planning it is called inefficiency.

o Point C can only be reached through:

· Trade

· The discovery of more resources

· Increased labour productivity from greater education and training

· Increased capital productivity from an increase in technological knowledge.

· Distinguish between microeconomics and macroeconomics; positive economics and normative economics; private sector and public sector

o Microeconomics: system which examines the economic behaviour of individual actors such as businesses, households, and individuals, with a view to understand decision making in the face of scarcity and the allocation consequences of these decisions

o Macroeconomics: system which examines an economy as a whole with a view to understanding the…